Congress sews a safety net for farmers

Farm prices are the lowest in a decade. Emergency aid is likely, butcritics want a permanent solution.

By
Ann Scott Tyson, Special correspondent of The Christian Science Monitor /
March 12, 1999

WASHINGTON

Three years after a major farm bill ended the nation's decades-old program of agricultural price supports, Congress is considering beefing up safety nets to aid farmers around the country hit by dramatically low crop prices, shrinking exports, and falling incomes.

But the proposed solutions - ranging from an expanded crop-insurance program to a return to commodity price supports - are both costly and tend to divide market-oriented Republicans and Democrats who favor subsidies.

Moreover, such remedies take time. So, as financially strapped farmers begin a new planting season, Congress could end up passing another emergency aid package this year like the more than $5 billion approved for farmers last October, both Republicans and Democrats concede.

Few dispute the hardship today's growers face - with conditions comparable, some say, to those of the depressed 1980s farm economy.

"Rural America is really concerned about how we are going to survive at these below-cost-of-production commodity prices," says Don Villwock, a corn and soybean producer in Edwardsport, Ind. "Optimism is probably the lowest it's been since the early 1980s."

Farm income dropped an estimated 12 percent last year, and economists foresee further worsening in the farm economy this year.

The plight of farmers is the result of unfavorable circumstances - weather disasters, weak exports, and steeply falling commodity prices - combined with the new market freedoms and risks farmers face under the 1996 farm bill.

Effects of the farm bill

The 1996 bill ended a longtime government program that restricted growers' acreage and planting decisions in return for price supports. Under the new law, farmers are free to base such decisions on the market. To help farmers make the transition to more market-driven agriculture, the new law provided seven years of fixed but declining payments.

Growers did well during the first two years under the legislation loosely referred to as "freedom to farm." Expanding world markets and stronger-than-average prices boosted farm incomes, and the initial fixed government payments were higher than what farmers would have received under the old farm act. But in 1998, several factors combined to reverse the gains.

*The Asian financial crisis drastically cut demand for grains from a key overseas market. US sanctions on India, Pakistan, and Iraq restricted trade with other buyers.

*Commodity prices began to collapse, partly as a result of record crops. Since 1998, the prices of corn, wheat, and soybeans have dropped roughly 30 percent, according to the American Farm Bureau in Park Ridge, Ill. Net farm income from wheat and corn for 1999 is expected to hit the lowest levels since the early 1990s, according to the US Department of Agriculture.

*Meanwhile, as some US farmers were hit hard last year by natural disasters, the fixed government payments under the new farm bill began to decline. As a result, many farmers began losing income and equity.

Responding to pleas for help from farm states, Congress in October stepped in with a large emergency spending measure that brought government farm program expenditures in 1998 alone to nearly $18 billion - an amount approaching the record outlay of $25.8 billion in 1985.

As a result, the agricultural downturn is now prompting questions about the adequacy of "freedom to farm" - both from farmers and members of Congress.

"With the tremendous volatility of the markets, farmers are taking a new look at the whole issue," says Gene Paul, president of the National Farmers Organization in Ames, Iowa. "I think the legislation is flawed to begin with."

Both Democrats and Republicans are contemplating the need for a greater safety net for the nation's more than 2 million farmers. "When you hit unforeseen years like we've had, there is not an adequate safety net there," says a GOP House staffer. Farm-state Republicans, including current House Agriculture Committee Chairman Larry Combest (R) of Texas, have expressed "grave reservations" about the lack of safety nets in the new farm bill, he adds.

How to help

At issue now is how to best protect farmers while still encouraging the market efficiencies. Several proposals are under discussion in Congress and the White House.

*Improving crop insurance and other risk-management tools. Farm-state lawmakers from both parties and the Clinton administration agree on the need to expand the nation's crop-insurance program, which is now too costly and offers inadequate coverage.

This week, the Clinton administration proposed $2 billion to $2.5 billion in extra crop-insurance funds, doubling the size of the federally subsidized program. The plan would cover livestock for the first time and help farmers more effectively guard against both natural disasters and market fluctuations.

Meanwhile, the House and Senate agriculture committees held hearings this week that put priority on finding ways to upgrade crop insurance. "I want improvements in crop insurance that rewards efficiency, good management, production and rewards harvest," said Chairman Combest.

Still, with tight budget ceilings imposed in 1997, the $2 billion needed to reform the crop-insurance program remains elusive.

*Trade expansion. Farm groups are calling on Congress to grant the president fast-track trade authority and also take other measures to increase the access of US farmers to world agricultural markets. "We've lost some exports and had very little help getting more," says Joe Miller, an agricultural economist at the American Farm Bureau.

*Regulatory relief. Calls for reducing red tape for farmers have led the House Agriculture Committee Republicans and Democrats to challenge the need for new environmental regulations that would raise farming and livestock costs.

*A partial return to the old program. Some Democrats have called for raising commodity price supports. The GOP opposes this because of the cost and the possibility it will cause a return of market distortions and crop and acreage restrictions.

In the meantime, calls for direct aid are likely to continue. "There are just humongous losses," says Miller. "Until something can be done about these prices, there will be aid requests."